South Korea’s Central Bank Sticks to 2% Inflation Target
No Low-Inflation Era in Sight
South Korea’s central bank governor, Rhee Chang-yong, announced on Wednesday that the institution will maintain its 2% inflation target until the next policy review. This decision comes after consultation with the government and a thorough assessment of the country’s economic landscape.
Effective Mechanisms in Place
Rhee highlighted the success of mechanisms implemented to stabilize high inflation in recent years. He expressed confidence in the bank’s ability to maintain price stability, citing the stable inflation outlook for the next two years. Moreover, major central banks around the world are also sticking to their 2% targets, underscoring the global consensus on this matter.
Economic Growth and Price Pressures
The central bank predicts that the economy will grow at an upper-1% rate in the next year or two, while accumulated price pressure from a strong dollar and climate change persists. This means that the likelihood of entering a low-inflation phase of below 1% is slim.
Interest Rates and Consumer Inflation
Last month, South Korea’s consumer inflation came in weaker than expected at 1.5%, allowing the central bank to lower interest rates for the second straight meeting to 3.00%. This move aims to support a slowing economy. Looking ahead, consumer inflation is expected to rise to the upper-1% range in the first half of 2025 and stabilize near the target from the second half.
Factors Influencing Inflation
The central bank identified a weaker local currency and higher public utility costs as key factors driving upward price pressures. On the other hand, lower oil prices are expected to offset these pressures. As the bank continues to assess its inflation-targeting system, it remains committed to maintaining price stability and supporting economic growth.
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